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UPDATE 2-Kazakhstan's new state pension fund could invest half its assets abroad
January 25, 2013 / 3:27 PM / 5 years ago

UPDATE 2-Kazakhstan's new state pension fund could invest half its assets abroad

* Kazakh leader wants to spur economy and spare oil fund

* Half of new pension fund could be invested overseas

* New pension plan raises concerns of nationalisation (Adds Marchenko, analyst quotes, details, background)

By Mariya Gordeyeva

ALMATY, Jan 25 (Reuters) - Kazakhstan’s planned merger of its private pension funds into a state-run entity, aimed at deploying billions of dollars to sustain rapid economic growth, could eventually invest half its assets abroad, the central bank said.

The new fund could be approved within three months, National Bank Governor Grigory Marchenko said on Friday.

Kazakh President Nursultan Nazarbayev has ordered the government to create a single pension fund to support the economy without raiding the country’s $58 billion strategic National Fund, replenished by windfall oil revenues.

Nazarbayev, 72, a former steelworker and member of the last Soviet Communist Party Politburo, personally oversaw the launch of pension reform in 1998, which allowed citizens in Central Asia’s largest economy to make pension savings in funds of their choice.

That reform won plaudits from economists who compared it to a similar reform conducted in Chile.

Some economists, however, have voiced concerns that his latest plan means sheer nationalisation and a backtracking of the president’s drive to enforce rapid market reforms.

Combined pension savings accumulated by 10 private and 1 state-run Kazakh pension funds totalled 3.177 trillion tenge ($20.7 billion) as of Dec. 1, 2012, central bank data shows. The state-run pension fund, GNPF, made up 19.3 percent of that sum.

Central bank Governor Marchenko said on Friday the new system would certainly be cheaper and costs would be smaller, presenting certain benefits for depositors, but he added: “At the same time, it is still an open question, to what extent this system will be more efficient than the one of private and competing pension funds.”

Official data shows that as of Dec. 1, 2012 the average 12-month yield on investment portfolios of all Kazakh pension funds varied between 1.25 percent and 3.3 percent, while cumulative inflation stood at 5.6 percent in the same period.

Marchenko, largely responsible for shaping Kazakhstan’s present-day banking and pension systems, quoted Albert Einstein - “the most powerful force in the universe is compound interest” - as a key argument ahead of the launch of the pension reform to lure Kazakh employees to make savings in funds of their choice.

Half of the new fund’s assets could go overseas, he said.

“Our proposal - and, of course, this will not materialise tomorrow - is to eventually achieve a 50-50 proportion (between investments abroad and at home),” Marchenko said.

For many years local pension funds had been allowed to invest up to 40 percent of their assets abroad, but they had never achieved this level, investing instead only 8 to 12 percent of that money in other countries, Marchenko said.

He said the new fund could be approved in a few months.

“If there is support from all government bodies and the parliament, all this can be achieved in three months,” Marchenko told reporters. “The key question is, how fast all these draft laws will be voted for in the parliament.”

Parliament is heavily dominated by Nazarbayev’s ruling Nur Otan party.

GROWTH TARGET

Nazarbayev, who is criticised for his authoritarian methods, has tasked the government with ensuring 7 percent growth in gross domestic product in the coming years.

Growth in the Central Asian economy slowed to 5.0 percent last year, from 7.5 percent in 2011.

Russian investment bank Renaissance Capital estimated that pension fund assets accumulated by Kazakhstan’s 11 pension funds equalled 10 percent of its annual GDP, compared to just 3 percent in its close political and economic partner Russia.

In the Czech Republic, this is 6.3 percent of GDP and 15.6 percent in Poland, the bank said.

Armen Dallakyan, an analyst at rating agency Moody‘s, said Kazakh pension fund assets could finance the local economy via the banking system or directly through investments in local currency, the Kazakh tenge, bonds and shares.

“If in one go (which is unlikely) all pension assets are deposited in the banking system, this would significantly reduce interest rates and may push the banks to aggressive lending, ultimately resulting in asset quality problems down the road,” Dallakyan said.

“If, however, only a part of the pension assets, say $3 billion to $4 billion, are deposited in the strongest banks for a long term, I believe this would have a largely positive effect for the banks and the economy as lots of projects need long-term tenge funding.” (Reporting by Mariya Gordeyeva; Writing and additional reporting by Dmitry Solovyov; Editing by Hugh Lawson and Susan Fenton)

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